Now Kmart begins the road back. But the job of rebuilding the USA's third-largest discount retailer will be at least as great as the problems that landed the company in bankruptcy protection.

In one of the biggest markdowns in retailing history, Kmart's actual value is estimated at only 38 cents to 45 cents on the dollar, according to a liquidation analysis of company assets commissioned by management.

And beginning in 2005, Kmart estimates, it will have to spend $100 million to $200 million a year to make up a deficit in its employee pension plan. The total owed: about $900 million.

Nevertheless, management submitted a comprehensive reorganization plan last week in federal bankruptcy court in Chicago that outlines a return to profitability within one year after a decade of decline.

In the reorganization plan, management set aggressive financial targets with the goal of $1.3 billion in annual pretax earnings by 2007 based on only "modest" increases in store sales but significantly higher margins. The plan is subject to bankruptcy court approval at a Feb. 25 hearing.

In part, the higher margins would be achieved by eliminating hundreds of low-performing products while emphasizing more profitable exclusive brands such as Joe Boxer, Martha Stewart Everyday and Thalia. Kmart also plans to sell three company airplanes and streamline managerial ranks by the time it emerges from bankruptcy court protection in April.

The court approved two actions Tuesday: closing 316 stores and borrowing $2 billion from a syndicate of banks for the exit from bankruptcy protection, to replace its Chapter 11 financing. The closings, which will cost about $300 million, will bring total store closings since the filing to more than 600, leaving about 1,500 stores, and will raise the total layoffs to about 67,000.

Even then, the company will have one of the USA's largest retail presences. And management is moving aggressively with a "store of the future" concept emphasizing new signs, a new color scheme, wider aisles and better lighting.

In what constitutes a large show of confidence in the reorganized company, two big investors, ESL Investments and Third Avenue Trust, plan to pour $153.4 million of new money into Kmart.

If asked, the investors would add up to $60 million more for a note convertible to stock, Kmart says. Should the investment firms convert all their debt to equity, they would own up to 50% of the reorganized company.

Former Kmart shareholders would be wiped out in the reorganization, although they stand to collect up to 2.5% of any legal claims the company pursues against former managers accused of misconduct in an internal investigation. The FBI, a federal grand jury and securities regulators also are investigating.

Kmart nearly ran out of cash during the 2001 holidays but emerged from the 2002 holidays with no cash-flow problems, executives say.

Executive Vice President Ron Hutchison, Kmart's chief restructuring officer, says, "We've stabilized the liquidity, we're stabilizing the trade, and now we really need to get out of bankruptcy as rapidly as we can. ... We need to have management totally focused on the business and quite frankly to stop spending $10 million a month on (bankruptcy fees) while we're in."